Sept. 24 (Bloomberg) -- Toyota Motor Corp. and Aeon Co.,
Japan’s largest auto and retail companies, are resuming
operations in China after protests over a territorial dispute
hurt sales and disrupted production for Japanese businesses.

Toyota said it expected to fully restart production today
in China, where protesters torched auto showrooms and smashed
Japanese-branded vehicles last week, spokesman Joichi Tachikawa
said. Aeon has reopened all of its China stores except two and
is assessing damage on one that was attacked, according to
spokesman Tomohiro Itosaka.

Demonstrators protesting Japan’s purchase of islands
claimed by both countries last week ransacked stores and auto
showrooms, forcing firms from Fast Retailing Co., a seller of
Uniqlo apparel, to Honda Motor Co. to shutter Chinese outlets
and factories. Fast Retailing expects China sales for last week
to be about 20 percent less than usual even as it plans to
reopen all outlets by today, spokesman Keiji Furukawa said.

“Sept. 18 was the worst when we closed 60 stores
temporarily,” Furukawa said. “The sales on that day were one
third of what we would have gained.”

Honda has been able to reopen its factories in China,
although it hasn’t fully recovered from the closures, President
Takanobu Ito said on Sept. 21.

Island Fight

Japanese auto sales in China will be hurt next month as a
result of the tensions, Akio Toyoda, president of Toyota and
chairman of the Japan Automobile Manufacturers Association, said
in a briefing in Tokyo last week.

Japan’s three biggest carmakers -- Toyota, Nissan Motor Co.
and Honda -- had reported attacks on their dealerships in the
eastern port city of Qingdao and halted production at Chinese
plants.

Companies started to resume operations after demonstrations
eased at the end of last week. The dispute between Asia’s two
largest economies flared up earlier this month after Japan’s
government said it would buy the islands, known as Diaoyu in
China and Senkaku in Japanese, from their private Japanese owner.

China claims that it’s owned the islands for centuries,
while Japan argues it took administrative control of them in
1895, lost its claim after World War II and had the islands
returned to it in 1972.

The diplomatic crisis, the worst between the two countries
since 2005, prompted street protests in Shanghai, Beijing and
other Chinese cities.

Japanese companies will probably be able to recover lost
production and the unrest will have a limited impact in the
short term, although the longer-term effect is “difficult to
determine,” Moody’s Investors Service said in a report.

Police Barricades

The ratings firm said the automobile industry is “better-positioned” to sustain short-term declines in sales in China
amid strong global vehicle sales. The consumer electronics
industry is more vulnerable as it undergoes restructuring, it
said.

Canon Inc. halted operations at its factory in Zhuhai,
Guangdong province on the afternoon of Sept. 21, after a
temporary resumption the previous day, according to spokesman
Hirotomo Fujimori. The company’s factory in Zhongshan, Guangdong,
also halted work amid employee concerns over anti-Japan protests,
he said.

Panasonic Corp.’s Suzhou factory is back to normal, while
output partially resumed at another one in Qingdao on Sept. 21.
A Zhuhai factory has stopped operations as about 10 Chinese
employees protested, spokesman Atsushi Hinoki said.

Seven & I Holdings Co., the owner of the 7-Eleven
convenience store brand, has reopened all shops that it had
closed in China. “There was almost no damage to our stores
because there were barricades by armed police,” spokesman
Hirotake Henmi, said by phone.

Trade Relations

The diplomatic spat endangers trade relations between
Asia’s largest economies and comes as second-quarter economic
growth in China moderated to the slowest pace in three years.

Japanese companies have been investing in China despite
that slowdown. Foreign direct investment by companies from Japan
surged 19.1 percent from a year earlier to $4.73 billion in the
first seven months of 2012, according to the Chinese Ministry of
Commerce.

About 700 people marched in central Tokyo on Sept. 22 to
protest China’s claim to the rocky islands and the presence of
Chinese surveillance ships in nearby waters, the Sankei
newspaper reported on its website, citing police estimates.

Airlines Reduce Flights

China “strongly” opposes the landing of Japanese citizens
on the disputed islands, the Foreign Ministry said on Sept. 22.
Japanese nationals visited the islands with the excuse of
preventing a landing by Taiwanese activists, the ministry’s
spokesman, Hong Lei, said in a statement.

Japan Airlines Co. said last week it will reduce services
to Beijing and Shanghai starting Oct. 10 until Oct. 27. All
Nippon Airways Co. will fly smaller planes to Beijing from Oct.
17 until Oct. 31.

China Southern Airlines Co. and other Chinese carriers have
also pared services to Japan amid a boycott that prompted the
cancellation of planned trips to Japan by Chinese holidaymakers,
according to Citigroup Inc. Cancellation rates for vacations in
Japan may increase further ahead of weeklong Chinese holidays
starting Oct. 1, Citigroup analysts Vivian Tao and Rigan Wong
wrote in a note last week.